Ontrack Looks To Test Shorts: What's Next?

When Ontrack Inc OTRK pre-announced its fourth-quarter 2020 earnings on March 1, the stock plummeted 47% despite printing a massive revenue beat.

Although Ontrack grew its revenues to $29.3 million for the quarter, an increase of 149% year over year and 22% from the previous quarter, its CEO and Chairman Terren Peizer disclosed the company's largest customer had terminated its contract effective June 26, 2021. With the loss of the customer, and its 8,400 members, investors exited the stock on fears its revenues may substantially decrease.

On the news Institutions also opened short positions on Ontrack and as of May 14, a whopping 29.28% of Ontrack’s float was held short. Interestingly, of Ontrack’s small 8.1 million share float, 95.33% is held by insiders and institutions with insiders holding 58.72% of the float and institutions holding 35.61%.

Since March 1, Ontrack’s stock has mostly traded sideways while digesting the news, between $28.21 and $35.75, but on Wednesday broke up bullish.

The Ontrack Chart: On Wednesday, the stock gapped up 10% but sellers came in and the stock immediately filled the gap. On its gap up, however, Ontrack’s stock entered the huge overhead gap with a range between $39.65 and $55.85. Because gaps fill 90% of the time, Ontrack is likely to make its way back up toward the $55 level in the future.

Ontrack is trading well above both the eight-day and 21-day exponential moving averages (EMAs) and Tuesday’s bullish action caused the eight-day EMA to cross above the 21-day EMA, all of which are bullish indicators. Ontrack is trading 32% below the 200-day simple moving average, which indicates overall sentiment in the stock is bearish, and Ontrack needs to do a lot of work yet to regain that level as support.

Bulls want to see Ontrack’s stock hold above support at $35.75 and for bullish volume to re-enter the stock to drive it back up into the gap. The stock will also have to battle over the $46.28 mark to fill the gap completely.

Bears want to see sustained bearish volume to drop Ontrack back below support near the $35 level and into its previous sideways trading pattern. If Ontrack’s stock then loses support of the eight-day and 21-day EMAs it could revisit the $28 level.

OTRK Price Action: Ontrack’s stock was trading up 6.8% to $38.04 at publication time.